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Regarding the answer to the above question, I have one particular problem. I don’t understand why this isn’t a reimbursement, or at the very least, a contingent asset.
Here is the part from q3 (a), that I produce, because it’s the part that deals with contingent assets:
Compensation agreements had been arranged with the victims, and these claims were all covered by Greenie’s insurance policy. In each case, compensation paid by the insurance company was subject to a waiver of any judicial proceedings against Greenie and its insurers. If any compensation is eventually payable to third parties,this is expected to be covered by the insurance policies.
I don’t understand this whole paragraph. What’s the agreement between Greenie and the insurance company? We are told “waiver of any judicial proceedings” so does that mean that the insurance company has told Greenie that if it makes an “out of court” settlement with the victims then it will pay for those victims on Greenie’s behalf?
BPP revision kit answer to this part says
“Because any insurance claim will only be made after the courts have determined compensation, and will then need to be assessed on its merits, any payout is one step removed from the potential payment of
compensation. In other words it is merely possible rather than probable,
and disclosure of a contingent asset would not be appropriate. ”I don’t understand this answer at all, or what’s happening. In the scenario we were told that ” If any compensation is eventually payable to third parties,this is expected to be covered by the insurance policies. ” and also “… and these claims were all covered by Greenie’s insurance policy.” so isn’t it virtually certain that the insurance company will pay? Why is this not disclosed as a contingent asset, it appears probable to me, or better, why can’t we show it as an asset because it sound as if it’s virtually certain and therefore meets the definition regarding reimbursements.
So what’s BPP rationale, in simple words, of it being possible only. I don’t get what they mean by “”Because any insurance claim will only be made after the courts have determined compensation, and will then need to be assessed on its merits,” and how is this relevant? Please explain.
Any claim against the company will be diverted to the insurers.
But it’s by no means clear that there is to be a claim (at least, not according to what you have posted)
So liabilities, should they exist, can only be classed as contingent – requiring a disclosure note
IF, and it’s apparently a big IF, any claims are made, they will be passed on to the insurers. But that also is contingent upon claims being made, and those claims being approved and that approval determined and measured according to the merits of each claim.
It’s all together too IFFY
But, let’s assume that the claims are <50% probable. Then so too must be the likelihood of any reimbursement from the insurers.
But whereas a contingent liability requires disclosure, the contingent receipt of reimbursement is ignored for the purposes of both recognition and disclosure
OK?
Can you just quote the phrase, from what I posted above, that shows that “But it’s by no means clear that there is to be a claim (at least, not according to what you have posted)” How?
Okay so if I understand it right, it’s something like that we are not sure whether the insurers will approve our appeal and refund or reimburse the money and therefore, BPP/examiner, correctly say that it’s only possible and not probable and thus no disclosure of a contingent asset will be made. Is this a right way of interpreting it? And what about the “out of court settlement” I quoted before, was that too a correct interpretation?
I thought you had answered it yourself! (I obviously didn’t read it carefully enough!)
Here are various phrases that suggests “it’s by no means clear that there is to be a claim”
“compensation paid by the insurance company was subject to a waiver of any judicial proceedings against Greenie and its insurers”
“If any compensation is eventually payable to third parties”
“Because any insurance claim will only be made after the courts have determined compensation, and will then need to be assessed on its merits”
“it is merely possible rather than probable”
There cannot be more indication that the payments out are merely contingent upon the court’s consent and the agreement not to pursue judicial claims and if payment out is only contingent, then reimbursement is not virtually certain and not even disclosable as probable
Incidentally, we set out our stall to answer within 48 hours. Your post was 28 hours ago! We also reserve the right not to reply. I have replied
I also have a life of my own – I do not exist merely to answer your posts on your inability to understand and your continuing desire to pick holes in the semantics of the phraseology used in exam questions, answers and examiners’ reports.
I hadn’t missed your post – I genuinely believed that you had answered it yourself and that my input was not necessary.
If you post in future, and if I don’t reply, it’s because I have chosen not to reply (I have never ever in 6 years done that, but there is always a first time!)
Incidentally, on reading your earlier post from yesterday, I think you are incorrect
“Okay so if I understand it right, it’s something like that we are not sure whether the insurers will approve our appeal and refund or reimburse the money and therefore, BPP/examiner, correctly say that it’s only possible and not probable and thus no disclosure of a contingent asset will be made. Is this a right way of interpreting it?”
The uncertainty is nothing to do with the insurers approving our appeal! It’s whether the courts will accept our offer to settle out of court AND restrict the right of the claimants to pursue us through later judicial action.
And IF (big IF) that happens and the court DOES approve, then all the claims are believed to be covered by insurance.
The uncertainty is in the court’s acceptance of the offer.
But there is so much uncertainty about that that the insurance cover cannot possibly be seen as virtually certain and not even probable
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